Why a DIY approach to small business can be costly – and how to turn your fortunes around

Many small business owners rightly pride themselves on their independence – after all, you want to do it yourself and take on the world (or at least your local market).

However, new research from accounting platform Xero and market research firm Forrester suggests toning down such boldness may be wise because larger SMEs typically perform better than their smaller counterparts as a result of getting external advice.

While a positive mindset is crucial, the latest ScotPac SME Growth Index also highlights the fact that many SMEs are shunning the knowledge of financial advisors. The poll of 1253 small businesses that East & Partners conducted shows that just one in five small businesses (17.7%) seeks expert advice for long-term strategic planning.

In the face of additional challenges confronting SMEs as a result of COVID-19, the Index provides some actions that can make a difference as you navigate the road to recovery during the pandemic.

1. Work with trusted advisors
The research from Xero and Forrester indicates that small businesses represent more than 90% of all global businesses, yet only 26% of them consult trusted advisors such as accountants or other financial experts.

The findings indicate that those who have thrived throughout the pandemic are businesses that lean on expert advice. This aligns with previous SME Growth Index results.

A DIY approach may be short-sighted because experts can provide tips on better understanding your cashflow position and help you take proactive steps to bolster your financial situation. The Index shows that, overwhelmingly, when small businesses turn to trusted advisors it is for tax and compliance advice – this was nominated by 93.2% of respondents. Asset acquisition and disposals (34.1%) and succession planning (26.8%) are also areas where SMEs look for guidance.

However, they fail to take advantage of other areas of potential assistance, with just 13.7% seeking M&A advice and only 10% getting risk-management tips.

The message? Don’t be stubborn – and reach out to experienced advisors as you strive for post-pandemic success.

2. Check out smarter finance solutions
There is no doubt that adopting better working capital solutions can improve cashflow and long-term sustainability for smaller businesses. Yet many SME owners remain trapped with bank funding that relies on equity in their home to fund their business.

East & Partners found that long-term strategic planning remains a low priority for many small businesses, especially those who say they are in a declining or static business phase. This group is characterised by a higher level of primary bank funding (22.7%) relative to growth SMEs (only 15.8% of whom use primary bank funding for growth).

The finding highlights the importance of exploring other more appropriate business funding solutions such as invoice finance, which alleviates waiting times for invoices to be paid and gives businesses an upfront cashflow boost. As an indication of just how crucial this can be, the Index reveals that 72.5% of SMEs are struggling as a result of cashflow issues.

3. Invest in your business
The instinctive reaction of some business owners during crises such as COVID-19 is to hope for the best and bunker down.

However, the SME Growth Index highlights the dangers of being complacent and demonstrates where external advisors can make a difference. One issue occurs when businesses hold on to cash. Brokers and other financial advisors should be having conversations with their clients on the importance of investing in their businesses so they can gain a competitive advantage.

Advisors can also help their clients develop funding strategies that help to manage working capital. SMEs are often in vital need of cashflow solutions, with stock-buying, invoicing and seasonality being major factors in the lifecycle of a business.

Smart investment, built around robust working capital solutions, can be a game-changer.

4. Restructure your business
The Index shows that two-thirds of SMEs are seeking transformation through restructuring efforts, including reassessing their funding options.

Many are planning a comprehensive analysis of their operations at a time when the Australian Government’s new small business restructuring laws are in play and which are designed to make it easier for eligible businesses to reset their balance sheets and return to profitability. Cost-cutting is also on the agenda, including the option for some of shifting head office or downsizing.

5. Consider entering new markets
When one door shuts, another opens. As tough as the pandemic has been on many businesses, it has also created opportunities for smart, agile players in a range of markets.

One option is to export, but the complexities of international markets highlight the importance of getting the assistance of experienced financial advisors with a track record of success.

Trade finance, a facility that uses a revolving line of credit to pay overseas or local suppliers in almost any currency, can be an option for those SMEs targeting new international markets. It can deliver fast funding for stock, inventory and raw materials, so you don’t have to turn away new orders. The line of credit can be used to pay your overseas or local suppliers and close any cashflow gaps.

Don’t go it alone
The message is clear for SMEs that may be spooked by the pandemic. Don’t stand still; be positive; and, perhaps most importantly, seek out external advisors who can help you survive and thrive.

The SME Growth Index clearly shows that many SMEs are nervous because of the impact of the pandemic. When asked how they felt about running their business now, compared to their feelings in early 2020 before COVID-19 hit, 55.3% indicated they are less positive, exasperated, uncertain or feel they are lacking support.

Such trepidation is understandable, but reaching out and getting external advice can mean the difference between success and failure for many SMEs. So take action now.

How ScotPac can help
Do you need additional working capital facilities to support your plans for the new financial year and beyond? Now is the perfect time to talk to us about a review of your solutions and whether we can help to unlock more opportunity in your business. Contact us today for more information.